Friday, January 27, 2012

Notes on "The State of the Union"

While we were watching President Obama’s state of the union address Tuesday, a couple passages jumped out at us. Here they are, along with our thoughts (please hold your applause until the end):

We’ve subsidized oil companies for a century.  That’s long enough. It’s time to end the taxpayer giveaways to an industry that rarely has been more profitable, and double-down on a clean energy industry that never has been more promising.  Pass clean energy tax credits.”

PWC: Yep, President Obama is right...oil companies have been getting subsidies for a long time.  From an economic perspective this is not very efficient: pay companies that produced a resource that, when combusted, have numerous costs that are not included into the price you pay at the pump or the monthly electric bill. Some of these costs are paid for by the government however (such as asthma mediation in low income kids or cleaning up oil spills). So the federal government is spending money on problems that it subsidized.  The answer:* create a market for or put a price on carbon emissions.  This would “capture” the true costs of producing energy (carbon based and wind/solar/geothermal) and orient the market to produce the right amount for an accurate price.
A plan like this would also take away Congress and the President’s ability to pick the best technology and energy source.** Rather, they pick the outcome or the goal (ie a sound market for energy production with x amount of y type of emissions) and let businesses, producers, consumers decide what methods will best lead to that outcome.  

*OK, maybe it is not “the” answer because there are other viable options.

**They kinda like being able to do allows them to rally their bases and get support from a “big oil” group or a “green tech” group.  For this reason it is unlikely that such a policy would pass.

JML: Carter is right on here. One theme I do really appreciate in this speech, and others I've heard, is the idea that we all owe our country something. America has allowed everyone - everyone - to lead a better life than they would have practically anywhere else on Earth. We are all indebted to this country.

“And by the way, it was public research dollars, over the course of 30 years, that helped develop the technologies to extract all this natural gas out of shale rock.”

JML: I’m not sure what Obama is getting at here, but it sounds a lot like “fracking.” And if it is fracking that is really, really bad. To extract natural gas, companies pump a high pressure mixture of chemicals (which chemicals, exactly, is a fiercely defended as a trade secret) into porous shale. The combination of pressure and chemicals breaks up the rock, freeing natural gas to be captured. The only problem is some of the natural gas ends up other places. The chemicals, too.

Let’s just hope I read this wrong and he’s not talking about fracking and we can pretend this whole thing never happened.

Because if he really is casually pushing something like fracking on the American people as “green energy,” then he needs to stop pretending like he has a conscience or a soul and go drink some flaming tap water. And prepare himself for a more in-depth and more expletive-laden post from this guy*.


PWC: Yep, sure does have a fracking ring to it.  See above for my thoughts on engery.  My guess is that fracking would constitute an energy technology that “has a few externalities.”  So the lesson of the day is: lots of externalities = lots of expletives from Labuz.

“So let me put colleges and universities on notice: If you can’t stop tuition from going up, the funding you get from taxpayers will go down.”

JML: Universities do need to do something to cap the rising cost of tuition (indexing growth to inflation rather than their own made up scale would be a good start), but this is only half the battle. University funding is a zero sum game - if they get less money from states and hold the line on tuition, that money has to be made up somewhere. If I didn’t know better, I’d say someone’s been reading our blog.

PWC: This is tricky.  Federally backed loans allow many students to attend college who would not be able to attend otherwise.  But, by guaranteeing these loans, colleges know that enrolling a student means that the school has secured a large amount of revenue for the next four, five, or six years. Without federal student loans colleges could lose numerous students (which is not good for any party involved) but with the federal money flowing in, schools have no incentive to find efficiencies and cost savings (unfortunately the easiest “savings” will be to keep enrollment (aka revenue) steady, while reducing quality of instruction or instructors).  With Obama’s proposal then, there will have to be a few guidelines.*  First, the schools have to demonstrate that the school causes changes in students (meaning the outputs are different than the inputs) A recent report suggests that most students don’t learn in college.  If students don’t learn, then they don’t get jobs, then they don’t earn money to pay back student loans (or pay taxes for future students' loans).  Additionally, this learning should take place within a set time four years.  If the government only provided four years of loans, my guess is that there would be an uptick in four-year graduation rates.  

*See a future post on college loans and the cost of college

“Send me a bill that creates these jobs.”

JML: Sure, sounds simple enough.

PWC: Yea...simply a breeze.  Because it is actually this easy to pass that bill.

When students are not allowed to drop out, they do better.  So tonight, I am proposing that every state — every state — requires that all students stay in high school until they graduate or turn 18.”

PWC: This makes a lot of sense on the premise that 17 year olds can’t quite grasp the value of a high school diploma.  By making them stay in school until they turn 18 would create many more employable persons (even though only a few extra months of school may not make that much of a difference, if those three month lead to a diploma it serves as a signaling device in the job marketplace).  Some education policy researchers, however, think that  forcing kids (who don’t want to be there) to stay in school is inefficient because these students could be getting vocational training (even before high school, perhaps) which would serve them much better if they have no plans of going on to college.  In either case, the idea of mandating that states do this is beginning to encroach on Amendment #10.  So, if this is a policy option, the Obama Administration could set up a system where education money is tied to having this age requirement (like they do for federal transportation money and drinking age).

JML: I don’t know how much sense this makes. You might be able to put warm bodies in the seats, but if kids don’t want to learn, they are better off getting started at a trade school or something else a year early. That’s why even that first sentence is suspect. People will succeed if they want to (and if resources, opportunity, etc. are there). If they don’t want to no piece of paper (law or diploma) is gonna do the trick. But what the hey - let's remind the states who's really running this show.

“But he found work at Energetx, a wind turbine manufacturer in Michigan. Before the recession, the factory only made luxury yachts.”

JML: Luxury yachts + recession = WIND POWER!

PWC: The irony of this analogy is kinda humorous and fits perfectly with the “middle class is suffering and the wealthy aren’t” theme of the speech.  I would have liked to see the speech writers/researchers when they came across this story.  See above for my thoughts on the energy policy stuff.

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